Craig Ramsey, global head of real-time payments at ACI Worldwide, tells CNME Editor Mark Forker what impact he believes the decision by the UAE Central Bank to launch a domestic real-time payments scheme will have for both consumers and the banking ecosystem when it sweeps into effect in October 2022.
The UAE is a fast-moving economy, and in a bid to keep up to speed with the evolving demands of the market and consumers then it is crucial that you have the infrastructure required to support that environment. As part of its National Payments Systems Strategy, the UAE formally announced through the Central Bank that it was introducing an IPP (Instant Payments Platform) to support financial inclusion across the Emirate.
ACI Worldwide are a global leader when it comes to real-time digital payment software and solutions – and has already spearheaded and led similar schemes in Europe and the United States to name a few. They have been enlisted to leverage their knowledge and expertise to help banks across the UAE to connect to the UAE’s central real-time payments infrastructure that is designed to add another layer to the UAE’s burgeoning economy.
CNME Editor Mark Forker caught up with Craig Ramsey from ACI Worldwide to find out more about the IPP system that will be introduced to the UAE in October of this year.
Ramsey kickstarted the conversation by outlining what his definition of a real-time payment was, and he highlighted how there are several different terms to describe real-time payments which is dependent on location.
“The UAE isn’t the first country to drive real-time payments, and there has been a huge amount of success with them around the world. However, firstly I’d like to qualify what a real-time payment is. They go by four different names, just to add an extra layer of confusion to the market. In the United States and across parts of Europe they are referred to as instant payments, the UK calls them fast payments, but many around the world calls them real-time payments. Albeit there is also term called immediate payments, which ACI tends to use to really identify this type of instruction – and as the name suggests it is an immediate and instant way of moving funds between two accounts. In most instances it comes with a set of rules that the beneficiary of the funds should be able to get access to those funds and immediately be able to reuse them,” said Ramsey.
We know that we now live in an experience economy, which at its core is ultimately fueled by convenience. We want access to cash, and we want it instantly. We no longer have the tolerance to wait 24 hours to access that cash and use those funds after being set up as a beneficiary. Interestingly, Ramsey pointed out that rather inadvertently the hospitality industry was now serving as an accelerator for real-time payments.
“Restaurants globally are pushing back on spilt bills due to an increase in fees for the merchant, so take for example, if one person picks up the bill for a meal with friends, then we know the traditional way has been to pay them back in cash. However, it is evident that less and less people are carrying cash, but what we do have is access to electronic money, so you can now send the money instantly to your friend when they have picked up the bill and they’ll receive that money instantaneously, and they won’t have to wait a day to access it,” said Ramsey.
The global head of real-time payments at ACI Worldwide noted that each country that implements an IPP (Instant Payments Platform) can govern the system by their own set of rules, and he stressed that it remained unclear as to what the IPP system will look like in the UAE, but he drew on his experience in the UK.
“The rulebook for how the IPP system in the UAE will work is yet to come out, but if I draw on my own experience in the UK, then it allows me to set up a beneficiary and pay them instantly. It will take less than a second for most banking providers to process real-time payments within their payments’ estate. ACI has been supporting banks with their payments needs for debit and credit cards for decades, and one of the things that we solved a long time ago was enabling ATMs to be working 24/7, and that 24/7 nature is at the core of real-time payments, as they need to operate 24/7 for 365 days of the year,” said Ramsey.
Ramsey reinforced how the current digital economy is shaped by human behaviors and expectations, and as he rightly pointed out advancements in technology have led to us living in a world where everything is done instantly. He added that the main factors fueling real-time payments was both driven by consumers and progressive governments pursuing transformational fiscal policies to modernise their financial and banking systems.
“The acceleration towards real-time instant payments has been primarily driven by a combination of governments and consumers. We are living in an instant world. If we order items from Amazon, or another e-commerce platform then we expect to receive those goods rapidly. We also expect to see information on everything we do, and we expect to be able do it on a smartphone, and a payment is no different. I want to be able to make a payment using my smartphone, and I want to know that it has happened instantly – because it makes absolutely no sense that the payment takes longer to move electronically, which can still take up to 3-days in some traditional systems, than the goods take to be physically shipped,” said Ramsey.
In addition to this, Ramsey also stressed how real-time payments represents the evolution of how the banking system will operate for the next 30 years.
“Real-time payments are not the next evolution of what the current payment systems do, real-time payments are the evolution of how banking works with customers, consumers, and merchants for the next 30 years. We see around the world that real-time payments are having a big impact on cash and cheque usage and if we look at schemes pre-pandemic then cash and cheque was already being reduced in favor of using real-time payments. Once the pandemic occurred then there was an exponential growth and acceleration in real-time payments – and it has undoubtedly accelerated customer adoption,” said Ramsey.
Ramsey then went into forensic detail in relation to the mechanics of how payments work and compared the processes at play between credit and debit card payments versus that of real-time transactions.
“In every payment there is a clearing cycle and a settlement cycle. Clearing happens at the point of payment, and it assures the beneficiary that they are going to get paid. However, with a card payment there could still be a dispute that results in that payment not happening, with an ACH payment then it could still be clawed back if a direct debit is disputed, but with real-time payments they are irrevocable, when it happens it’s done. With an RTGS payment the clearing and settlement happens at the same time, but with an ACH payment the clearing happens, but the settlement potentially doesn’t happen until days later,” said Ramsey.
Ramsey also pointed out that with a real-time payment you can also split the clearing and settlement, and that allows you to increase your customer base.
‘You can do instant clearing with the payment that has been executed on their smartphone, and the account settlement can happen through a digital wallet, or some other mechanism that doesn’t require the consumer themselves to be the account holder, so there are many ways to extend these payments and that ultimately promotes financial inclusion,” said Ramsey.
In a fascinating interview Ramsey concluded our discussion by stressing that FinTech companies are not a threat to traditional banks, and that they can coexist together in financial harmony.
“To move money then you’ve got a choice you either use the banking system, or you take money out of the banking system and use it in some sort of private digital wallet and those essentially are your two ways to move money. The banking system has traditionally been only open to banks, and so therefore has been a closed system. However, FinTech companies have come along and have had to work out how they can move money, and again they are left with the same choice. That’s where we have seen open banking come to fruition across Europe through the implementation of APIs. I think when that was first announced there was a belief that the FinTech companies would come and steal the business away from the banks, but that’s not how it works. Open banking fundamentally means that you’re easier to do business with, so when a FinTech is looking for a payment proposition many of them don’t want to have the settlement risk, so they will want to use a banking partner, and the partner that they use will be the one that is most open and has a set of APIs that are easy to onboard to,” said Ramsey.